Enabling Africa’s engine of growth

Enabling Africa’s engine of growth

Commentary by Bryant (ABC) Orjiako, Chairman, Seplat Petroleum Development Company Plc

SMEs can drive economic growth and job creation across Africa, but need support from government and the private sector to realise their potential.

London Stock Exchange Group’s active role in enabling businesses in Africa to grow is commendable, and I am delighted to contribute to this publication that showcases the continent’s fastest-growing companies and small and medium-sized enterprise (SME) success stories. History has shown that SMEs are the engine of socio-economic growth and development in any economy, particularly developing ones. They drive technological innovation, job creation, export promotion, import substitution, industrial development and poverty alleviation.

Studies by the International Financial Council (IFC) show that approximately 96% of Nigerian businesses are SMEs, compared to 53% in the US and 65% in Europe. The IFC also states that Micro, Small and Medium Enterprises (MSMEs) contribute an average of 50% to global employment. In Nigeria, MSMEs contribute 84.02% of national employment and, in nominal terms, the sector contributes an estimated 46.54% to the nation’s GDP, according to Nigeria Export Processing Zones Authority (NEPZA) 2013 figures.

SMEs, however, face challenges that constrain their capacity to grow and contribute meaningfully to the country’s GDP. These challenges were highlighted in a 2013 National Bureau of Statistics (NBS) survey on MSMEs. They include access to finance, poor infrastructure, regulatory inconsistences and obsolete technology. The high dependence on imported raw materials also contribute to these bottlenecks, creating a high-cost environment that stifles productivity and growth.

“Countries like Nigeria and Angola have established government initiatives to support entrepreneurs”

The good news is that these challenges are being tackled now. Countries like Nigeria and Angola have established government initiatives to support entrepreneurs. One such example is the Nigerian Stock Exchange’s Alternative Securities Market (ASeM), which is a specialised platform for SMEs with high-growth potential to access low-cost and long-term capital to enable them grow and establish themselves.

On other fronts, regulatory policies that overburden SMEs need reform, while tariffs and trade practices that favour imported finished products at the expense of domestic production should be amended.

One of the major drivers of economic growth in Africa is power generation. SEPLAT started in 2010 as an indigenous, medium-sized company and pioneered transformational transactions in Nigeria to become a global one. Today, the company plays a significant role as a major supplier of gas to the domestic power-generation market. Through massive expansion of our gas-processing facilities, our combined gas processing capacity has increased to 525MMscf/d.

Seplat further supports SMEs by earmarking certain contracts exclusively for them in cases where they would be disadvantaged if competing with large companies. SMEs are also encouraged to partner with large companies in the execution of projects that enable skills transfer. Finally, strong corporate governance is a key success factor for businesses, large or small. The key is to institute robust corporate governance structures and systems that persist through all of a firm’s growth phases.

This publication shows that there are some great success stories in the SME sector in Africa. With the right enabling environment and best practices to attract the right investments, I believe the future holds even greater promise.